In the space of a few years, Bitcoin has gone from something couch potatoes trade for a slice of pizza via a Reddit thread, to one of the hottest commodities on the market.
In the last five years, total daily transactions in the Bitcoin market have risen 900% from 33,800 to over 335,000 according to CoinDesk. As the cryptocurrency has become more popular, so have the instruments to trade it.
More exchanges are opening up, and Bitcoin ETFs may be on their way.
But one tool that is already up and running is Bitcoin options.
For years, Bitcoin option trading was not regulated in the U.S.
but this looks set to change with a recent decision by the Commodity Futures Trading Commission (CFTC).
However, trading Bitcoin options is not for the faint-hearted.
Although it has taken some time to come to fruition, demand for traditional derivative markets in the cryptocurrency trading arena is growing at an exponential pace. While the presence of Bitcoin futures trading has been around for some time now, it wasn’t until this year that a select number of platforms opened their doors to cryptocurrency options.
This week, CME Group announced it will launch Bitcoin Options trading in Q1 2020. These are big news whom are also highly fundamental for the experienced trader. Not only do options contracts offer users the ability to hedge against the risks of a sudden change of market direction, but they are also a useful speculative tool, too.
For example, let’s say your current Bitcoin portfolio is looking healthy, however, you feel that an impending bear market is imminent.
Wouldn’t you like the opportunity to be able to take a view on a cryptocurrency without having all the risk of the position?
This is where cryptocurrency options come in and they provide a whole host of opportunities for you to make the most out of crypto market volatility.
Where can you trade these options and what sort of strategies can you use? Could we eventually see cryptocurrency options hitting an exchange such as the CME or CBOE?
Options are derivative instruments that give the holder the right to buy or sell a cryptocurrency at a predetermined price (Strike price) sometime in the future (expiry time).
Options have been a part of the general financial markets for decades and were originally used by farmers in order to secure the price of their crops when they were brought to the market.
Crypto proponents have been excited by the launch of bitcoin futures and options, but many are unfamiliar with the fundamentals. Bitcoin options are a popular way to take advantage of a volatile market by strategically hedging some of the risk. To clear up the jargon associated with the most common form of derivatives trading, analysts here explain the role played by cryptocurrency options.
Also Read: Options Giant CME Launches Bitcoin Futures — Here’s What to Expect
In traditional finance there are two types of options that can be bought.
These are known as a ‘call’ and a ‘put’ option.
A call option will give the holder the right to buy an asset at the strike price.
Bitcoin options enable traders to bet on the Bitcoin price with high leverage.
Bitcoin options are traded on specialized Bitcoin options exchanges that offer different functionalities and terms.
So, we created this guide to help you find which Bitcoin options exchange is best for you.
Options are a type of derivative, which means they are based on an underlying asset, such as commodities, stocks or cryptocurrencies.
Depending on the type of option contract held, buyers will be given the opportunity to buy, or sell the underlying asset at a given value, known as the strike price within a specific time period.
There are two basic types of options, these are ‘call’ and put’ options.